Financial Times

Domestic producers to gain; defence spending on the rise

The Business for Peace Alliance (BPA), a network of 23 regional business chambers, says given the rise in defence spending it is doubtful whether the expected benefits to producers and consumers can be reaped in the context of the global financial crisis and the recessionary wave.

BPAs said though not as massive as last year, the increase in defence expenditure is nonetheless likely to impose cut backs on proposed development projects and social welfare. The continued warfare is likely to inhibit the proposed development projects, especially in the Eastern Province.

The Alliance hailed the proposed regional infrastructure development projects and believes that such investments will lead to regional inclusivity and empowerment in the process of economic development, a cause that the BPA has been advocating since its inception in 2002. In this sense, the development of Galle as a world heritage city is commendable.

It is expected that the proposed increase in cess taxes on imported items such as furniture, leather products, garments and ayurvedic products will have a positive impact on domestic production, especially the regional SMEs. The removal of import taxes on raw material for leather and handicraft industries is a positive move directed at encouraging domestic production.

BPA said the reduction of VAT and the raising of tax brackets are seen as an encouraging move towards the development of SMEs. On the other hand, the BPA hopes that the moves proposed by the government to encourage domestic production do not signify a return to the contested import substitution policies.

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